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Tuesday, 12 February 2013

Madalena Ventures rated as "top pick" for Mackie Research in energy - stock has been "oversold"

Madalena Ventures (CVE:MVN) has made Mackie Research's one of two top picks in the energy sector for 2013, with the broker saying the junior oil and gas producer has been oversold on political uncertainty in Argentina.

The junior oil and gas exploration and production company has an interest in three blocks covering 280,077 gross acres in the prolific Neuquén Basin in Argentina. In Canada, it has a large, focused, core area within the Greater Paddle River Area, with 153 net sections of land and a large inventory of horizontal development locations.

Analyst Bill Newman, who has a buy rating and a $2.15 target price for Madalena, says the company's stock has been severly impacted by the nationalistic policies enacted by the Argentina government in early 2012.

He notes, however, that by late 2012, the political environment began to improve, yet Argentina-focused Madalena's stock remains oversold.

"In order to diversify political and exploration risk, in Q4/12 Madalena acquired Online Energy, a company with approximately 650 boe/d of production and a significant acreage position of 197 gross (153 net) sections of land in the Paddle River area of central Alberta," the analyst writes.

"We see two main drivers of value for Madalena in 2013: Production growth in Canada from the current winter drilling program and continued Vaca Muerta (VM) shale appraisal in Argentina."

Indeed, Madalena has a large inventory of horizontal development locations found on its Greater Paddle River core area. During the current winter drilling program, the company plans to drill, multistage frac and tie in four to five gross horizontal wells.

The campaign, which Newman predicts could increase corporate production to 2,000 boe/d by the end of this year, will target three resource plays - Ostracod light oil, Notikewin/Falhar/Wilrich liquids-rich gas development plays, and Nordegg oil and liquids-rich gas.

Meanwhile, Madalena continues its appraisal of the Vaca Muerta shale, and other shales in Argentina this year, which have the potential to prove up substantial large-in-place resources across its three blocks in Coiron Amargo, Cortadera and Curamhuele.

"In addition, as a result of the two separate billion dollar farm-in deals by Chevron and Bridas on YPF’s lands, we expect hundreds of VM wells to be drilled in 2013 on blocks that are directly adjacent to MVN’s Coiron Amargo block," adds the analyst.

When looking at catalysts for its stock, Newman notes political normalcy in Argentina and production growth.

Combined with quick expected growth in its production and cash flow base in Canada, he says that the Vaca Muerta, Lower Agrio and Los Molles shales in Argentina, alongside high impact Quintuco and Mulichinco plays, expose Madalena to massive resource upside.

Mackie's analyst says that at the current market price, Madalena trades at a significant discount to the broker's risked net asset value of $2.15 per fully diluted share. Shares of the Canadian junior are currently changing hands at around 40 cents.

The other top pick for Mackie Research in the energy sector was Americas Petrogas (CVE:BOE), with the analyst noting that the company's shale success is not reflected in its stock. Newman has a buy rating and a $5.70 target price for Americas.